TSX and Dow roar back

4 European countries ban short selling

Traders crowd the post of specialist Patrick Murphy, right, on the floor of the New York Stock Exchange on Thursday, as the Dow Jones industrial average surged more than four per cent. (Richard Drew/Associated Press)

North American stock markets finished sharply higher Thursday as traders put cash into stocks that had sunk to attractive levels following recent meltdowns.

Also Thursday, four European countries banned short selling for certain shares, a trading practice blamed for Wednesday's sharp drop in the shares of French banks.

The S&P/TSX composite index closed up 340.91 points, or 2.79 per cent, at 12,539.80, while the Dow Jones industrial average surged 423.37 points, or 3.95 per cent, to 11,143.31.

Wall Street's best-known stock index had plunged 1,100 points in the three previous sessions, including a 520-point drubbing on Wednesday.

S&P/TSX composite index 1-month chart

The U.S. market benefited from news that fewer Americans joined the ranks of the unemployed last week. Better than expected results from Cisco also helped the overall mood.

Toronto's main market strength came from the two most heavily weighted sectors — energy and financials. The S&P/TSX energy index jumped 4.2 per cent as September oil surged $2.83 a barrel to $85.72 US. Natural gas futures gained 13 cents to $4.13 US. The financial index reversed early losses and rose 2.1 per cent.

Gold, which hit a record high in overnight trading above $1,800 US an ounce, became the target of profit-taking Thursday. December gold plunged $32.80, to $1,751.50 US an ounce. Prices were also pressured by a decision by the operator of the Chicago Mercantile Exchange to raise margin requirements on futures contracts.

The Canadian dollar was up 0.66 cents to 101.18 cents US. On Wednesday, the loonie tumbled more than 1.6 cents against the U.S. greenback amid extreme volatility on global currency markets.

Carlton Neel, who manages about $2 billion as a senior portfolio manager at Virtus Investment Partners, said investors are so scared of being the last one out of the market in a downturn or the last one in during a rally that they are stampeding in herds, creating more volatility.

"Fear tends to be a much more powerful emotion, and the sell-offs tend to be more violent than the rallies," he said. "But people are worried about missing the bottom, so you will have a few melt-ups along the way."

Memories of the last meltdown in 2008 are still fresh in the mind of many investors.

In October 2008, the Dow rose and fell by more than 400 points four times each. That includes a 936-point surge on Oct. 13 after European central banks pledged more aid to banks and the U.S. Treasury offered more details about how it would help U.S. banks.

Two days later, when a report showed retail sales had fallen more than anticipated, the Dow dropped 733 points.

Short selling banned

Late Thursday, France, Italy, Spain and Belgium imposed bans on short selling and on short positions in certain shares.

Short selling means borrowing an asset — including a currency — and selling it on the expectation its price will later fall and a profit will be made after repaying the loan.

The move came a day after the shares of French banks plummeted on what Bank of France head Christian Noyer called "unfounded rumours" that the country's financial institutions were in trouble because of their exposure to weaker eurozone economies.

The European Markets Security Authority also warned it would enforce penalties against short sellers engaging in the "dissemination of rumours and false or misleading news."

Greece had previously implemented a ban on short selling.

In Europe, Britain's FTSE 100, Germany's DAX and the CAC-40 index in Paris bounced in and out of negative territory before managing to finish with gains of two to three per cent Thursday.

Sarkozy and Merkel to meet Tuesday

"There is still not the sense that there is a credible solvency solution for Euroland," said BMO Harris private banking chief investment officer Paul Taylor. "As long as that exists, we will have issues."

European politicians were busy Thursday trying to address the uncertainty that has shaken investor confidence and helped to spread market turmoil around the globe.

French President Nicolas Sarkozy said Thursday he would meet German Chancellor Angela Merkel on Tuesday for talks on solutions to Europe's financial difficulties.